Ponzitrackerhttp://www.ponzitracker.com/main/Sat, 17 Nov 2018 02:46:45 +0000en-USSquarespace V5 Site Server v5.13.511-311 (http://www.squarespace.com)SEC, CFTC Accuse Utah Man Of $170 Million Silver-Trading Ponzi SchemeJordan D. MaglichSat, 17 Nov 2018 02:11:13 +0000http://www.ponzitracker.com/main/2018/11/16/sec-cftc-accuse-utah-man-of-170-million-silver-trading-ponzi.html935409:10856473:36130514State and Federal regulators have accused a Utah man and his company of scamming hundreds of investors out of up to $170 million on promises that trading in silver could yield annual returns of 20% to 40%. Gaylen Dean Rust and his company Rust Rare Coin, Inc. were the subjects of enforcement actions filed by the Commodity Futures Trading Commission ("CFTC"), Securities and Exchange Commission ("SEC"), and the State of Utah Division of Securities ("State of Utah") alleging that Rust and Rust Coin operated a massive Ponzi scheme and violated federal securities and commodities laws.

Rust Coin has been in business since 1983, operating as a coin and precious metal dealer in Salt Lake City. Rush served as Rust Coin's President and sole Director and was assisted by his wife, Denise Rust, and son, Joshua Rust, who served as the Secretary and Manager, respectively, of Rust Coin. Beginning no later than 2008, Rust and Rust Coin began soliciting potential investors for an exclusive investment opportunity involving the purchase and sale of silver (the "Silver Pool"). Potential investors were told that their money would be pooled with other investors' funds to purchase and store physical silver for investment, and that the physical silver would be stored at one of two Brink's, Incorporated ("Brink's") depositories in Salt Lake City and Los Angeles.

Those potential investors were told that Rust and Rust Coin were able to buy and sell silver based on market trends that resulted in annual returns ranging from 20% to 25% and at times reaching 40%. Those investors were not provided with any written agreement, disclosures, or prospectus, but rather received a single-page receipt documenting their investment. Rust and Rust Coin raised staggering amounts from investors. The SEC alleges that Rust raised over $85 million from roughly 300 investors from just January 2017 to August 2018. According to the CFTC, this total increases to over $170 million during the period from May 2013 to August 2018.

As the CFTC states, "the Silver Pool was a sham." Rust and Rust Coin did not consistently obtain extraordinary annual returns ranging from 20% to 40% from astutely timing the purchase and sale of silver, but instead allegedly used funds from new investors to pay returns to existing investors - the classic hallmark of a Ponzi scheme. Indeed, many of the representations Rust and Rust Coin made to investors were demonstrably false. For example, neither Rust nor Rust Coin had any contract with Brink's to store or hold any silver at any of their locations in the United States. And while Rust claimed that he had an account with HSBC Bank through which he traded silver held in the Silver Pool, neither Rust nor Rust Coin ever had an account with HSBC Bank to trade silver.

According to authorities, it appears that Rust and Rust Coin instead misappropriated investor funds for personal expenses such as mortgage payments and transfers to other entities controlled by Rust. For example, over $1 million was transferred to a Rust business that specialized in horse racing while another nearly $10 million was transferred to another Rust-controlled entertainment company where it was used for upkeep for a music and production studio. From January 2017 to August 2017, over $70 million of the $85 million raised was used to make payments to investors.

Ironically, one of the investors named in the CFTC and Utah's Complaint may have inadvertently drawn attention to his status as a net winner. H.H., who was employed by Rust Coin as an IT specialist from July 2017 to July 2018, received a $35,000 share in the Silver Pool as part of his employment and later decided to invest $96,000 of his own funds based on the promises of outsized returns. This resulted in an initial investment of $129,000. Yet when H.H. was terminated from Rust Coin in July 2018, he sought to terminate his investment and ultimately received a wire transfer of $171,793.02 representing his initial investment and employment benefit of $129,000 and purported investment gains of approximately $42,793. Given the appointment of a Receiver and the significant gains that investors have suffered, it is a near certainty that H.H. will be asked - either voluntarily or through litigation - to return the excess "net profits" he received by virtue of his investment that were actually stolen funds from other investors if the operation was a Ponzi scheme.

At the request of the CFTC and State of Utah, a U.S. District Judge for the District of Utah entered an Order appointing Jonathan O. Hafen as a Temporary Receiver to marshal and secure assets belonging to Rust, Rust Coin, and other defendants and relief defendants. It is unclear as to whether any assets remain for potential distribution to investors, although the SEC alleges in its complaint that approximately 99% of the funds raised from January 2017 to August 2018 were either paid to investors or misappropriated.

]]>http://www.ponzitracker.com/main/rss-comments-entry-36130514.xmlMississippi Man Gets 20 Years For State's Biggest Ponzi SchemeJordan D. MaglichFri, 02 Nov 2018 23:49:41 +0000http://www.ponzitracker.com/main/2018/11/2/mississippi-man-gets-20-years-for-states-biggest-ponzi-schem.html935409:10856473:36125900source: https://newsms.fm/website-provides-info-to-victims-of-100m-ponzi-scheme/A Mississippi man will serve nearly twenty years in federal prison after pleading guilty to masterminding the largest Ponzi scheme in Mississippi's history. Arthur Lamar Adams, 58, was sentenced to 19.5 years in prison for a Ponzi scheme that prosecutors argued caused losses ranging from $65 million to $150 million to approximately 300 investors. The sentence was handed down after a hearing featuring testimony from several victims, including U.S. Senator Roger Vicker, and U.S. District Judge Carlton Reeves' rejection of Adams' attorney's argument that funds returned to victims during the course of the scheme should decrease the total loss amount used in determining the relevant sentencing range. As there is no parole in the federal prison system, Adams can only hope to be eligible for release after serving 85% of his sentence.

Background

Adams founded Madison Timber Properties, LLC ("Madison"), which held itself out as a timber harvesting company. The company began soliciting potential investors in 2004, offering annual returns ranging from 12% to 15% through the harvest of timber from plots of lands owned by third parties. In many cases, investors were told that they had sole rights to timber harvested from specific plots of lands. Investments were typically memorialized by a one-year promissory note that could be rolled over, a timber deed and cutting agreement, a security agreement, a tract summary with the purported timber value, and a title search certificate. Adams and Madison raised at least $85 million from 150 investors throughout the southeastern United States that would purportedly be used to purchase additional timber tracts.

Many of these promises, however, were false according to authorities. For example, Adams is accused of never having obtained the requisite harvesting rights to the land as he had claimed. Many of the investment documents were allegedly forged by Adams, including the timber deed and cutting agreements as well as the tract summary showing the purported timber value. In many cases, Adams is accused of pledging the same plots of land (to which he had no rights) to multiple parties. Adams also allegedly misappropriated investor funds for unauthorized purposes, including for his own personal benefit and the development of unrelated construction projects in Oxford and Starkville, Mississippi. New investor funds were also used to pay returns to existing investors - a classic hallmark of a Ponzi scheme.

Investigation and Recovery

At the SEC's request, Judge Reeves appointed Alysson Mills as a receiver tasked with recovering assets for defrauded victims (among other things). The Receiver has focused her efforts on "recruiters" used by Adams who received millions of dollars in commissions for luring new victims, recently filing suit against several "recruiters" and seeking the return of more than $16 million in commissions. One of those recruiters, Michael Billings, is accused by the Receiver of personally recruiting more than $80 million in new investor funds for the scheme for which he personally received more than $3.5 million in commissions. The Receiver indicated in her most recent report that she had identified "at least ten" recruiters and sub-recruiters and that more complaints are expected to be filed in the event her negotiations are unsuccessful.

One key question will be whether any of Adams' victims profited by receiving more funds in purported "interest" or principal distributions than their initial investment. Those investors might then be subject to efforts by the Receiver to recover those "false profits" to distribute to defrauded victims. These efforts are typically the largest sources of recovery in the aftermath of failed Ponzi schemes. Of note, Adam's attorney has gone on record with his belief that no investor will have to "pay back any money." Ultimately, any decision will be made by the Receiver after a forensic accounting.

The Receiver also identified a number of third parties to whom Adams had made significant contributions or expenditures who could potentially be a source of recovery, including:

Cash gifts of at least $213,000 to his children;

Over $400,000 to the Ole Miss Athletic Foundation in the past ten years;

Over $100,000 to the Berachah Church;

Over $130,000 to the R.B. Thieme, Jr., Bible Ministries; and

Nearly $60,000 to Century Club Charities, Inc.

The Receiver indicated that she intends to bring claims against third parties to recover additional funds but declined to identify those potential parties. The Receivership estate currently has approximately $2.1 million o hand as well as various interests in entities holding land interests.

]]>http://www.ponzitracker.com/main/rss-comments-entry-36125900.xmlConvicted Ponzi Schemer Tried Buying Prayers, Casting Spells On SEC AttorneysJordan D. MaglichThu, 18 Oct 2018 00:16:49 +0000http://www.ponzitracker.com/main/2018/10/17/convicted-ponzi-schemer-tried-buying-prayers-casting-spells.html935409:10856473:36120789The federal trial of a Maryland woman accused of a $20 million trial not only ended this week with a jury taking five hours to convict her of all charges but came after revelations that the woman had spent hundreds of thousands of dollars to buy prayers and allegedly cast "hoodoo spells" on government attorneys investigating the scheme. Dawn Bennett, 56, was convicted of seventeen charges including conspiracy, securities fraud, wire fraud, and bank fraud. She will face potentially dozens of years in federal prison at sentencing.

Bennett, a former financial advisor who once hosted a radio show called "Financial Myth Busting with Dawn Bennett," was the owner of DJB Holdings LLC ("DJB"). DJB was a retail sports apparel business that had never turned a profit since its inception in 2010 and by December 2014 had incurred millions of dollars in expenses and outstanding liabilities. As her financial advisory income significantly dropped, Bennett began soliciting former and current clients to invest in DJB in exchange for a 36-month convertible note promising a 15% interest rate. Bennett later switched to selling short-term promissory notes following regulatory scrutiny, and ultimately raised over $20 million from dozens of affluent investors - many who were customers of her broker dealer.

However, the representations regarding DJB's financial status and viability were significantly overstated. According to an August 2017 action filed against Bennett by the SEC, the year end 2015 financial information provided to investors contained the folllwing misrepresentations:

Overstated sales by over $3.8 million, or 424%;

Overstated gross profit by nearly $2.5 million, or 3,382%;

Understated expenses by over $3.6 million, or 73%; and

Overstated net income by over $6.1 million, or 124%, and again inaccurately reflected a profit of $1.1 million rather than the actual net loss of nearly $5 million.

Investors were also not told that Bennett used factoring arrangements in which she sold future company revenues to non-bank lenders who had direct and priority access to DJB bank accounts and made significant withdrawals to repay their advances. According to the SEC, Bennett used over $10 million of the $20 million raised from investors for improper and undisclosed purposes including over $3 million in payments to earlier investors, $2.1 million for unrelated legal expenses, and nearly $1.5 million to the Dallas Cowboys for back rent on a luxury suite Bennett personally leased.

After learning she was under investigation, Bennett used investor funds to finance a highly untraditional response. According to testimony at her recent trial, Bennett paid a man in Washington over $700,000 to arrange for Hindu priests to perform religious ceremonies aimed at easing her troubles - including a "yagya" ritual costing over $7,000 in which five priests purportedly prayed for her for 29 consecutive days. The trial featured an email Bennett wrote to the Washington man in which she indicated:

I am in a very very tough fight going against my enemies and I need all the help I can get.

That purveyor of Hindu religious ceremonies was an unlikely witness at Bennett's trial, defending his practices and testifying that "we don't necessarily pray with a guaranteed outcome."

FBI agents executing a search warrant at Bennett's Maryland home last year also made an unlikely discovery when they found instructions for placing people under a "Beef Tongue Shut Up Hoodoo Spell" along with personal information of several SEC attorneys working on Bennett's case. Those agents also found lids of Mason jars in Bennett's freezer that contained the initials of those SEC attorneys, as evidenced by a picture taken from the affidavit provided by one of the FBI agents. That affidavit also stated that handwritten notes on "Dawn J. Bennett-styled stationary" contained directions "such as slitting open animal tongue, the instructions called on the spell-caster to state the name of the individual on whom to cast the spell followed by "I cross and cover you[,] come under my command[.] I command you to hold your tongue."

Bennett will be sentenced at a future date after the U.S. Probation Office prepares a Presentence Investigation Report containing a recommended (but not binding) sentencing range.

]]>http://www.ponzitracker.com/main/rss-comments-entry-36120789.xmlThree Men Charged With $345 Million Ponzi SchemeJordan D. MaglichThu, 20 Sep 2018 23:40:14 +0000http://www.ponzitracker.com/main/2018/9/20/three-men-charged-with-345-million-ponzi-scheme.html935409:10856473:36112130Authorities filed civil and criminal fraud charges against three men on allegations that they masterminded "one of the largest Ponzi schemes ever charged in Maryland" that raised at least $345 million from hundreds of investors nationwide. Kevin B. Merrill, 53, Jay B. Ledford, 54, and Cameron Jezierski, 27, were the subject of an emergency enforcement action filed by the Securities and Exchange Commission that included a request for an asset freeze and appointment of a receiver. The trio also face fourteen criminal charges, including mail fraud, wire fraud, money laundering, conspiracy, and identity theft charges. If convicted of all charges, each could face dozens of years in prison.

According to authorities, the trio operated a number of entities including Defendants Global Credit Recovery, LLC; Delmarva Capital, LLC; Rhino Capital Holdings, LLC; Rhino Capital Group, LLC; DeVille Asset Management LTD; and Riverwalk Financial Corporation (the "GCR Entities"). The GCR Entities solicited investors through promises of steady returns from the deeply-discounted purchase of consumer debt portfolios. Consumer debt, including automobile, credit card, and student loan debt, is often bundled into portfolios and sold in bulk to investors, which the GCR Entities told investors they were purchasing for their benefit. While the scheme involved the actual purchase of some debt portfolios, authorities allege that the vast majority of purported debt purchases were fraudulent and that the actual purchases of debt portfolios were used as part of the scheme to solicit more investors.

Using a dizzying array of interwoven entities and bank accounts, the trio solicited investors across the nation including both individual and institutional investors. Potential investors were often provided with documentation describing the investment structure and also viewed presentations offering projections about the anticipated investment returns. These promises included offering some investors 100% of collections of up to 25% of their principal investment annually - meaning those investors were offered annual returns of up to 25% along with the option for even higher returns. Potential investors also received "due diligence" documents prepared by Ledford or Jezierski providing a supposed analysis of the portfolio(s) they were purchasing as well as the anticipated purchase price. In total, the GCR Entities are believed to have raised over $345 million from at least 230 investors.

But authorities allege that the GCR Entities had not been in the business of buying consumer debt since 2014, and that the purported investment opportunity was a giant Ponzi scheme that used new investor funds to pay returns to existing investors. Approximately $197 million was paid out as purported remittances, collections, or profits, meaning that investors are facing total losses of roughly $150 million. Unfortunately, authorities believe that a significant portion of those losses were diverted to sustain the trio's extravagant lifestyles. The indictment alleged that investor funds were used to buy over 20 high-end automobiles, at least nine houses, and over $8 million in jewelry, as well as at least $25 million in casino gambling.

The sheer amount of real estate, automobiles, and jewelry sought to be forfeited from Defendant Kevin Merrill alone is staggering. Among other things, the indictment seeks to forfeit the following assets from him that were allegedly purchased with proceeds of the fraud:

6 properties, including a 7,700 square foot mansion in Naples, Florida that Merrill purchased earlier this year for $10.5 million;

A 2018 35' Formula Boat;

An interest in a Gulfstream Aircraft G200;

A 9+ carat diamond ring; and

7 Richard Mille watches.

The list of automobiles is truly a who's who of luxury automobiles. The list includes 25 (yes, 25) high-end automobiles including:

2014 Lamborghini Aventador Roadster

2016 Ferrari 488

2017 Audi R8 5.2 Plus

2017 Lamborghini Huracán convertible

2018 Rolls-Royce Dawn

2017 Rolls-Royce Wraith

2018 McLaren 720S

2008 Bugatti Veyron

2013 Ferrari California

2014 BMW M6 Gran Coupe

2014 Ferrari F12 Berlinetta

2014 Pagani Huayra

2017 Lamborghini Aventador

2018 Ferrari 488 Spider

2018 Lamborghini Huracán

The Court overseeing the SEC's enforcement action granted the SEC's request to appoint Gregory Milligan as Receiver over the GCR Entities.

There has never been a case like this one in all the years and in all the cases over which this Court has presided...In what appears to the Court to be the first of its kind, the investors have received not only all the monies they invested in the Ponzi scheme but have received substantial monies above and beyond their initial investments. All due largely to the extraordinary achievements of the Receiver that many of them now seek to vilify.

-U.S. District Judge Christopher A. Boyko

Receiver Mark DottoreIn a fitting end to an SEC enforcement action filed back in 2006, a federal judge agreed that a court-appointed receiver was entitled to a $2.4 million bonus for his "singularly remarkable and unheard of accomplishment" in recovering enough funds to pay victims over 110% of their losses - a feat that is likely unparalleled and especially extraordinary considering the average Ponzi scheme recovery has been estimated at pennies on the dollar. Over the objection of those same investors, United States District Judge Christopher Boyko entered the Order approving the bonus in July 2018, remarking that "no party was able to find another Ponzi scheme resulting in 100% recovery of losses let alone an additional 10% recovery for investors on top to date, with more to come. Therefore, the recovery in this matter by the Receiver for the investors can truly be said to be without precedent."

The Scheme

Dadante, a former casino host who touted his alleged ties to Donald Trump, was charged by the Securities and Exchange Commission in April 2006 on allegations that he was running a $50 million Ponzi scheme that touted outsized returns through supposedly low-risk trading strategies with his investment company. Investors were told that Dadante had a connection with a Goldman Sachs executive who provided him with exclusive access to initial public offerings - supposedly resulting in guaranteed annual returns ranging from 10% to 20%. In total, Dadante raised approximately $50 million from over 100 investors. The Court subsequently appointed Mark Dottore as Receiver.

However, Dadante's exclusive Goldman Sachs connection was a complete fabrication. Instead, the promised above-average returns were possibly only by paying existing investors through incoming investor funds - the classic hallmark of a Ponzi scheme. After criminal charges were filed in 2007, Dadante was sentenced to a 13-year prison term.

The Receivership and Recovery

While Dadante took in approximately $50 million from investors, the fact that his scheme lasted for several years while paying out 10% to 20% interest resulted in a corresponding decrease in the net losses suffered by investors. In fact, after adjusting for interest payments to investors, Dottore estimated that the total losses due to Dadante's fraud were $28 million.

Dottore, who is not a lawyer, embarked on a campaign spanning nearly a decade to recover funds for Dadante's victims. This included assisting investors in filing tax refunds for taxes paid on illusory profits as well as recovering more than $8 million through a settlement with Dadante. The cornerstone of this campaign, however, was litigation filed against Ferris Baker Watts ("Ferris"), the former brokerage house where Dadante was a prominent client. There, Dadante enlisted the services of a broker to purchase and illegally manipulate the shares of Innotrac Corp., a lightly traded technology company. Even though Dadante's purchases raised eyebrows among Ferris employees, the brokerage ultimately extended him nearly $19 million to finance the trading. Dadante eventually accumulated several million shares of Innotrac - making him a 34% owner of the company.

After the scheme was exposed, Dottore seized the 4.3 million Innotrac shares as part of the receivership estate. However, Dadante had also accrued a significant margin balance to purchase those shares which remained after the receivership and led to threats to redeem the debt and thus trigger a sale of the Innotrac shares. After the Receiver was able to ward off a margin call, he sued Ferris based on its relationship with Dadante and ultimately reached a settlement in which Ferris agreed to pay $7.2 million in cash and extinguish Dadante's multi-million dollar margin debt and thus retain the Innotrac shares. But the jubilation of that settlement would be short-lived.

By the time of that settlement, Dottore had already faced the ire of victims who argued that the Ferris lawsuit was ill-advised and simply an attempt to inflate already-inflated bills. As Judge Boyko recounted in his Order, investors moved to terminate the receivership in 2007 citing outsized expenses and dismal recoveries. After a court-ordered accounting, investors moved to liquidate the receivership based on, among other things, the argument that the Innotrac stock "lacked any real value." This included, among other things, the following motions filed in 2007:

Regalbuto Plaintiffs’ Motion to Show Cause Why Receiver Mark Dottore Should Not Be Held in Contempt (Sep. 11, 2007);

Regalbuto Plaintiffs’ Motion to Remove Receiver for Cause and Show Cause Why Receiver Should Not Be Held In Contempt (Aug. 1, 2007);

Regalbuto Plaintiffs’ Motion for Further Accounting (July 11, 2007);

Regalbuto Plaintiffs’ Motion for Accounting, (May 3, 2007); and

Motion to Terminate Receivership, (Jan. 26, 2007).

As Judge Boyko observed, a 2007 liquidation "would have resulted in a loss to all investors of most of their initial investments."

This crusade continued outside the courtroom and in local newspapers, with one 2008 news article featuring an investor comment that "the judge and Dottore have it all screwed up." Another investor apparently created a website with "letters and harsh opinions on..Dottore."

One main source of investors' ire following the Ferris settlement? That Dottore refused to immediately liquidate the Innotrac holdings at the then-prevailing prices that would have equaled a sizeable recovery. Around 2009, the price of those shares ranged from $2 to $4 per share - meaning that the Innotrac position fluctuated from $8 million to $17 million. Instead, Dottore believed that Innotrac's valuation had been unfairly depressed as a result of the Ferris litigation and its Dadante ties. The settlement also came at the onset of the economic downturn beginning in 2008 which also contributed to its lower valuation. Dottore resisted attempts to liquidate the Innotrac shares until 2013 when he sold for $8.20 a share for total proceeds of $35.4 million.

A "Success Fee?"

Dottore's lawyers disclosed at a 2014 hearing that he had recovered $47 million in cash in addition to securing forgiveness of $12 million in Dadante's debts, which would allow investors to recover their cumulative allowed losses of approximately $28 million as well as at least an additional 10%. After Dottore's lawyers were directed by Judge Boyko to research whether a "success fee" was warranted , the matter was taken under advisement.

In light of the "unprecedented recovery," the Court asked the Magistrate Judge for a Report and Recommendation as to whether the Receiver was entitled to any additional compensation. In that R&R, the Magistrate Judge weighed multiple factors including the "complexity of problems faced, the benefits to the receivership estate, the quality of work performed, and the time records presented." Finding that each of the factors weighed in favor of additional compensation, the Magistrate Judge used a 30% increase in the Receiver's "low hourly rate" to arrive at an additional compensation award of $1.2 million.

Some investors objected to the Magistriate Judge's R&R, claiming that the Receiver was not entitled to any additional compensation and that any compensation should be paid to those investors. Judge Boyko concluded that those objections were without merit, finding both that the Receiver's extraordinary result as well as relevant caselaw supported an award of additional compensation. Notably, the Court discerned that a substantial portion of the Innotrac stock had been purchased with margin debt - not investor funds - and thus could not be classified as profits realized from returns on investor funds. The Court further noted that:

This receivership faced serious obstacles from the beginning which the Receiver moved to counter, including the attempts by the various brokerage firms to call in the margin debt and force the sale of Innotrac stock while its value was low. Many of the investors brought suit against the Receiver and other investors, while some investors demanded he sell the stock early in the case when its value was minimal. Furthermore, and perhaps more damaging, were the efforts of some investors advocating that the Court find the IPOF Fund was not a limited partnership and to end the Receivership. This potentially would have exposed individual investors to liability for margin debts owed to the various brokerage firms. The Receivers efforts directly thwarted these ill-conceived efforts of some investors. It is not unusual for investors to disagree with a Receiver's strategy in receiverships, but it is wholly a different matter for the Receiver to save many investors from themselves.

Furthermore, there are accounts of contentious hearings, physical confrontations and conduct aimed at thwarting the Receiver's efforts to maximize the value of the Receivership by some of the same investors on whose behalf the Receiver was working.

The Court ultimately adopted the Magistrate Judge's R&R in part, finding that the Receiver was entitled to additional compensation but determining that the amount should be based on the upper end of comparable fees according to a report previously commissioned by the Court. In recalculating the Receiver's fees for the entire receivership based on that increased rate, the Court calculated an award of $2.424 million to the Receiver.

Under Appeal

For now, Dottore's bonus will have to wait as multiple groups of investors appealed the Order. Whether or not the additional award is upheld, it will not change the extraordinary outcome that Dottore and his team were able to achieve. Ponzitracker has already recognized that the recovery is likely the highest in known Ponzi cases, even among esteemed company such as the Madoff and Rothstein cases.

At the same time he was misappropriating investor funds, Santillo threw himself a party at a nightclub in Las Vegas for which he commissioned a song about himself to be played. The lyrics to that song refer to (Perry) Santillo as "King Perry" and describe his typical attire: "ten-thousand-dollar suit everywhere he rides." The song also depicts his lifestyle as follows: "pop the champagne in L.A., New York to Florida; buy another bottle just to spray it all over ya."

- SEC Complaint

The Securities and Exchange Commission filed an emergency enforcement action in a New York federal court, alleging that five men and their associated companies raised more than $100 million from hundreds of victims with promises of guaranteed returns. Perry Santillo, Christopher Parris, Paul LaRocco, John Piccarretto, and Thomas Brenner, along with First Nationle Solution LLC ("First Nationle"), United RL Capital Services ("United"), and Percipience Global Corp. ("Percipience"), were charged with violating the antifraud provisions of the federal securities laws. The Manhattan district court also granted the SEC's request for an asset freeze and temporary restraining order against the defendants, based partly on allegations of Defendants' significant misappropriation of funds for their personal use.

According to the Commission's Complaint, Santillo and Parris sought out retiring investment professionals nationwide with the goal of purchasing those professionals' "books of business" consisting of the clients they had serviced and advised during their career. The scheme's victims appear to be concentrated in several states, with over $25 million raised from 147 Florida investors, $21 million raised from at least 80 California investors, and over $8 million raised from nearly 75 Ohio investors. After purchasing or taking over those books of business, the Defendants or other sales people would then contact those clients and seek to persuade them to withdraw their funds from traditional investments and invest in companies controlled by various Defendants including First Nationle, Percipience, and United RL.

First Nationle was touted to investors as a holding company for several companies with insurance and risk products managing over $145 million in assets that offered investors three-year promissory notes with annual interest payments ranging from 3.3% - 6% as well as "bonuses" rnaging from 10% - 19% that were credited after the investment was made. Percipience claimed to be in the business of funding loans for the purchase of single-family homes, offering preferred stock to potential investors carrying one- or three-year "lock periods" and annual returns ranging from 7% - 8% also with bonuses upon investment. Finally, United RL purported to offer financing to physician and medical practices for the purposes of owning toxicology laboratories and offered promissory notes to potential investors with maturity dates of 1-3 years and offering annual returns of 7% along with 7% "bonus" payments. In total, the Defendants raised more than $102 million from at least 637 investors.

The Commission alleges that each of those offerings was a sham, noting that it was unable to find any evidence showing more than minimal business functions for the companies. Instead, the Commission claims that each company operated as a Ponzi scheme in which new investor funds were used to pay returns to existing investors. Of the $102 million raised from investors, more than $38.5 million was allegedly paid out as Ponzi payments to existing investors while at least $20 million was misappropriated by the Defendants for unrelated personal expenditures including sustaining luxury lifestyles. For example, the Commission alleges that Santillo used stolen investor funds to pay for housing in multiple states, lease cars, and spending at a Las Vegas resort and casino. Santillo is accused of using investor funds to have a song written about him, including lyrics referring to him as "King Perry" who wore "ten-thousand-dollar suites everywhere he rides" and would "pop the champagne in L.A., New York to Florida; buy another bottle just to spray it all over ya."

The SEC's Complaint also underscores the critical role that due diligence must play in investment decisions, as there appear to be a number of red flags that were easily discoverable that might have caused a prudent investor to at a minimum ask more questions. For example. each of the five Defendants was previously registered with the Financial Industry Regulatory Authority ("FINRA"), which oversees registration and regulation of investment professionals. A review of each of those Defendants' BrokerCheck, which is a publicly-available resource offered by FINRA, shows that each had been suspended or barred from associating with FINRA members. For example, Defendant Piccarreto was registered with FINRA from 2014-2015 but was suspended for 23 months in July 2017 for participating in the unregistered offering of securities and for making misleading statements to FINRA.

"Greed is not good. Greed drove this individual to lie, cheat and steal from fellow Mississippians, and led him to prey upon others outside our state, simply to personally benefit himself."

- U.S. Attorney D. Michael Hurst, Jr.

In what may be the largest Ponzi scheme in Mississippi history, civil and criminal authorities charged a 58-year old man with raising at least $85 million from investors who thought they were profiting from the harvesting of timber. Arthur Lamar Adams, 58, made his first appearance today after being arrested earlier in the day on two counts of wire fraud and one count of bank fraud. Each of the wire fraud counts carries a maximum twenty-year prison sentence while the bank fraud charge carries a maximum thirty-year term. The type of charging instrument used, a criminal information, suggests that Adams and prosecutors have reached a plea agreement. According to the New York Times, Adams' lawyer has confirmed that his client is cooperating with prosecutors.

Adams founded Madison Timber Properties, LLC ("Madison"), which held itself out as a timber harvesting company. The company began soliciting potential investors in 2004, offering annual returns ranging from 12% to 15% through the harvest of timber from plots of lands owned by third parties. In many cases, investors were told that they had sole rights to timber harvested from specific plots of lands. Investments were typically memorialized by a one-year promissory note that could be rolled over, a timber deed and cutting agreement, a security agreement, a tract summary with the purported timber value, and a title search certificate. Adams and Madison raised at least $85 million from 150 investors throughout the southeastern United States that would purportedly be used to purchase additional timber tracts.

Many of these promises, however, were false according to authorities. For example, Adams is accused of never having obtained the requisite harvesting rights to the land as he had claimed. Many of the investment documents were allegedly forged by Adams, including the timber deed and cutting agreements as well as the tract summary showing the purported timber value. In many cases, Adams is accused of pledging the same plots of land (to which he had no rights) to multiple parties. Adams also allegedly misappropriated investor funds for unauthorized purposes, including for his own personal benefit and the development of unrelated construction projects in Oxford and Starkville, Mississippi. New investor funds were also used to pay returns to existing investors - a classic hallmark of a Ponzi scheme.

In parallel civil proceedings, the Securities and Exchange Commission filed an enforcement action accusing Adams and Madison of violations of federal securities laws. Adams and Madison agreed to the entry of an asset freeze and permanent injunction.

]]>http://www.ponzitracker.com/main/rss-comments-entry-36063722.xmlAfter Mistrial, Feds Will Retry Accused $100 Million Ponzi SchemerJordan D. MaglichFri, 03 Nov 2017 00:22:58 +0000http://www.ponzitracker.com/main/2017/11/2/after-mistrial-feds-will-retry-accused-100-million-ponzi-sch.html935409:10856473:35991129Nearly eight years after a Utah man was indicted on charges he masterminded a $100 million Ponzi scheme, federal authorities announced that they will retry the man after a recent trial ended in a mistrial. Rick Koerber was originally indicted in 2009 on twenty-two charges relating to his operation of several companies that promised investors monthly returns ranging from 1% - 5% through real estate investments. Koerber initially prevailed in having the indictment dismissed when a federal judge agreed that prosecutors had waited too long to file charges, but an appeals court reversed the decision and set the stage for a recent trial that resulted in a mistrial. If convicted of the 17 charges he is facing, Koerber could spend the rest of his life in prison.

Background

Koerber, who called himself a "Latter day capitalist," garnered a growing following for his purported real estate investing prowess and was well known in the community not only for his membership in the Latter Day Saints Church but also for hosting a radio show and frequent real estate seminars. Through his companies, Founders Capital and Franklin Squires, Koerber touted his "equity milling" program that promised lucrative returns through buying and selling residential real estate. Investors came in droves, entrusting tens of millions to Koerber's operations. Even Koerber's radio show changed its opening theme song to, "Money, Money, Money" by Abba. Koerber also appealed to listeners' religious beliefs, even remarking to one listener who questioned his motives that "God is a capitalist." In total, Koerber raised approximately $100 million from investors.

However, the collapse of the real estate bubble in 2007 was catastrophic to Koerber's operations, as the majority of Franklin Squires's assets were in the form of real estate that quickly erased any equity as housing prices declined. He was indicted in May 2009, and a superseding indictment handed down six months later included twenty-two charges including wire fraud, money laundering, and tax fraud.

District Court Dismisses Indictment

In April 2014, nearly five years after the first indictment was handed down, Koerber filed a Motion to Dismiss for Impermissible Delay citing multiple grounds, including the violation of Koerber's right to a speedy trial. The Speedy Trial Act (the "Act"), codified at 18 U.S.C. § 3161, requires that the trial of a defendant entering a plea of not guilty was to start within 70 days of the later of the filing of the indictment or appearance by the defendant in front of a judicial officer. While the Act also allows for certain extensions, Koerber's motion argued that at least 125 non-exempt days had passed without a trial or other resolution.

At a hearing, the Government conceded that while a "technical" violation of the Act had occurred, the Court should "cure" the violation by entering an Order pursuant to the Act essentially making a finding that the "ends of justice" warranted a retroactive continuance and outweighed the best interests of the public and Koerber. However, the Court cited precedent standing for the proposition that such a retroactive mechanism was prohibited and that a violation of the Act would have occurred even of such actions were taken.

In deciding whether or not to grant dismissal with prejudice, which would prevent prosecutors from re-filing the charges, the Court referenced the seriousness of the offenses and also the "Government's problematic conduct in prosecuting this case," including a "pattern of neglect," tactical delays, an inappropriate use of attorney-client privileged information, and ex parte interviews with Koerber that violated his due process rights. Noting that prejudice to Koerber was presumed, the Court opined that re-prosecuting Koerber would be impossible and ordered that the case be dismissed with prejudice.

The Appeal

The Tenth Circuit faulted the district court's analysis in dismissing the charges on two grounds. First, while the district court correctly embarked on an analysis of the seriousness of the offenses pursuant to 18 U.S.C. § 3162(a)(2), the Tenth Circuit found that this analysis had included several unrelated factors - the presumption of innocence, issues with the "indefiniteness of the information contained in the indictments," and the government's alleged misconduct. Rather than stopping its analysis at the seriousness of the allegations, the Tenth Circuit found the district court had abused its discretion by considering:

the indictment’s allegations, which are beyond what this factor measures: the seriousness of the charged offenses

...

The strength of the allegations and of the evidence against a defendant is irrelevant to [the seriousness of the offense] factor.

...

The district court strayed off-course by weighing the strength of the government’s allegations instead of the seriousness of the charged offenses themselves.

The Tenth Circuit concluded that the district court abused its discretion in both weighing the seriousness of the offense and applying that finding to whether or not dismissal with prejudice was warranted.

Next, the Tenth Circuit agreed with the government's argument that the district court had failed to "fully consider Koerber's responsibility in the [Act] delay," noting that the "district court was not free to ignore Koerber’s other acts that may have partially contributed to the STA violation." The government pointed to instances where Koerber "disregarded his STA rights by waiting passively and acquiescing to the postponement of his case," including his waiting months or even years to file motions directed at certain specific events or dates. The Tenth Circuit agreed, noting that:

One such motion is Koerber’s April 2012 motion to suppress statements from the February 2009 interviews. The district court held a hearing in November 2012 and additional argument in April 2013. Not until August 15, 2013, did the district court grant Koerber’s motion.

The Tenth Circuit ordered the district court to review whether Koerber's actions contributed to delays under the Act, and whether those delays would change the district court's review of the second factor of its analysis given the government's conduct.

The First Trial and Jury Controversy

Trial began in late August 2017 and lasted for eight weeks, with jurors deliberating for seven days before announcing they were unable to reach a verdict. While the District Judge overseeing the trial declared a mistrial, Koerber's attorneys declared victory in noting that their private discussions with certain jurors following the trial suggested that 11 out of the 12 jurors had voted for acquittal. However, in a recent filing indicating their intent to retry Koerber, federal prosecutors took issue with that characterization and instead indicated that:

“Based upon what we learned from these candid and informative discussions, and based upon the serious crimes alleged and unresolved, the United States will move forward with retrying this case.”

Unsurprisingly, Koerber's attorney fired back and described a scene of a 'rogue' juror trying to influence the remaining jurors to convict Koerber:

“It was described how that one juror attempted to influence the others with private meetings outside the courthouse, private gifts and benefits, and undisclosed conflicts of interest that had been concealed from the court during the voir dire process and throughout the trial...When it appeared that the rest of the jury was ready to render at least a partial verdict acquitting Mr. Koerber, that one juror refused to go along and, in a last-ditch effort, tried to bargain with the other jurors — if they would just vote guilty on any one count, pick one, he would agree to acquit on the rest....And when the other jurors pointed out how improper it was to even make such a proposal, that one juror terminated deliberations.”

Prosecutors have asked U.S. District Judge Robert J. Shelby to set a scheduling hearing to determine a new trial date.

]]>http://www.ponzitracker.com/main/rss-comments-entry-35991129.xmlSEC Investigating Mortgage Company That Raised $1 Billion From InvestorsJordan D. MaglichThu, 02 Nov 2017 00:00:54 +0000http://www.ponzitracker.com/main/2017/11/1/sec-investigating-mortgage-company-that-raised-1-billion-fro.html935409:10856473:35990527The Securities and Exchange Commission has asked a Miami federal judge to enforce subpoenas against nearly 250 companies affiliated with Woodbridge Group of Companies, LLC ("Woodbridge") in connection with the Commission's investigation into whether "the company is perpetrating a fraud on its investors." In a proceeding filed today seeking an order compelling the production of various financial- and investor-related documentation, the Commission disclosed its ongoing investigation into Woodbridge's receipt of more than $1 billion in investor funds relating to various real-estate offerings. The move comes after the Commission successfully brought a similar action against Woodbridge after the company refused to produce any of its emails and several officers, including CEO Robert Shapiro, invoked their Fifth Amendment rights in sworn investigative testimony.

According to the Commission, Woolbridge, based in Sherman Oaks, California, has raised over $1 billion from thousands of investors nationwide through various products offered for investment. These products include the First Position Commercial Mortgage ("FPCM"), which the company describes as:

“[a] private third-party loan to Woodbridge [which] provides higher returns with shorter terms secured by commercial real estate. Private lenders select a commercial mortgage in Woodbridge’s inventory to serve as collateral for their private loan. They are recorded on title and acquire a first lien position on the mortgage. And every lender is paid monthly interest from the moment they loan to Woodbridge at a fixed annual 5% interest with a return of principal at the end of the one-year term.”

In other words, investors loan money to Woodbridge which purportedly uses those funds to acquire properties and in return pays investors a 5% annual return as well as records those investors on the property title. According to the Commission, Woodbridge forms a limited liability company for each one of the properties it acquires in order allegedly for liability purposes. Woodbridge also raises money using investment offerings through entities such as Woodbridge Mortgage Investment Fund III, LLC.

The Commission began investigating Woodbridge in September 2016 for what it described as "possible significant violations of the securities laws," including "the offer and sale of unregistered securities, the sale of securities by unregistered brokers, and the commission of fraud in connection with the offer, purchase, and sale of securities." While the Commission first informally reached out to the company to request documents in late 2016, the lack of any response forced the Commission to issue a formal subpoena for certain documents including email correspondence between Woodbridge principals, investors, and sales agents. While Woodbridge produced documents in response to the subpoena, the Commission took issue with its failure "to produce many of the requested documents critical to the investigation." In addition,

Many key witnesses, including, but not limited to, Mr. Shapiro, D.R., Woodbridge’s Managing Director of Investments, and N.P., Woodbridge’s Controller, have invoked their Fifth Amendment rights in sworn investigative testimony, and have thus refused to answer any substantive questions or provide any of their e-mails.

The Commission then provided several prioritized requests for certain documents, including emails, but was informed by Woodbridge's counsel that only one person at the company was available and capable of searching for emails and that the company could not afford to contract with a third-party vendor. After Woodbridge's counsel attempted to meet with senior leadership at the Commission to discuss the investigation, the Commission filed an action in July 2017 seeking to compel Woodbridge's compliance with the subpoena. The Court granted that request on September 20, 2017, ordering Woodbridge to produce responsive documents and emails using Court-ordered search terms.

In connection with the discovery that Woodbridge formed separate companies to purportedly hold their commercial properties, the Commission sent out subpoenas to the 236 LLCs it had identified. The Commission alleged that:

The 236 LLC subpoenas sought basic information about the formation, ownership and bank account information about the LLCs, in order to garner further insight into their affiliation and connection with Woodbridge and its President, Robert Shapiro. However, despite service of the subpoenas, and demand letters sent approximately six-weeks later, the Commission has not received a response from 235 of the LLCs.

According to the Commission, its investigation demonstrated that "many, if not all, of these LLCs may be Woodbridge affiliates with Shapiro as their Manager." The 235 subpoeaned LLCs failed to respond to the Commission's subpoenas, and the Commission filed an action yesterday seeking to compel their compliance.

A quick Google search shows that several state securities regulators have investigated various Woodbridge entities. For example, several Woodbridge Mortgage Investment Fund entities entered into a consent order in May 2015 with the Massachusetts Securities Division in which the entities neither admitted nor denied that they had sold unregistered securities, agreeing to cease selling unregistered securities to Massachusetts residents, offering rescission to those investors, and also agreeing to pay a $250,000 civil penalty. Similarly, the Michigan Department of Licensing and Regulatory Affairs recently issued a Notice and Order to Cease and Desist in August 2017 to Woodbridge Mortgage Investment Fund II, LLC, ordering the entity to cease and desist from selling unregistered securities and from omitting to state material facts.

]]>http://www.ponzitracker.com/main/rss-comments-entry-35990527.xmlFor Galemmo Ponzi Victims, Recovery Chances Depend On ClawbacksJordan D. MaglichTue, 14 Feb 2017 01:22:53 +0000http://www.ponzitracker.com/main/2017/2/13/for-galemmo-ponzi-victims-recovery-chances-depend-on-clawbac.html935409:10856473:35862357When a Cincinnati money manager's $100 million Ponzi scheme collapsed over three years ago, authorities seemingly acknowledged the bleak prospects of recovery in declining to seek appointment of a receiver to marshal and gather assets for victims. Galemmo, a former purported savvy trader who touted consistent gains amidst market turmoil, quickly pleaded guilty and received a 15-year prison sentence. With the seizure of several million dollars in Galemmo's assets held up on appeal, victims' sole hope for any recovery rested on an unlikely scenario: compelling other 'victims' who profited from their investment during the scheme to turn over those profits to be collectively divided among the less fortunate victims. With the assistance of a Cincinnati law firm, those victims have started to see results.

The Scheme

Galemmo operated Queen City Investment Fund ("Queen City"), along with a dozen other investment entities. Touting himself as an experienced trader, Galemmo promised outsized returns through investments in stocks, bonds, futures, and commodities. Investors were told Queen City had enjoyed a streak of consistently above-average returns, including a return of nearly 20% in 2008 when the S&P 500 experienced a -38.49% loss. Galemmo assured investors that Queen City was audited annually, and provided monthly statements showing steady returns. Galemmo raised more than $100 million from individuals, trusts, and even charities.

However, Galemmo's touted trading prowess was pure fiction. Instead, Galemmo used new investor funds to pay his promised returns - a classic hallmark of a Ponzi scheme. Nor was the Queen Fund audited; rather, Galemmo simply listed the name of an audit firm that had not had a relationship with Galemmo or his fund since 2003. Investors received fictitious account statements, and Galemmo paid himself tens of millions of dollars in fictitious management fees, which he used to purchase real estate, pay fictional interest and principal distributions, and even to operate other businesses such as entertainment complexes.

The scheme collapsed in July 2013 when investors received an email from Galemmo stating that the funds were shutting down and directing all further inquiries to an IRS agent. Victims filed a lawsuit later that month, and Galemmo was later arrested. He agreed to plead guilty shortly thereafter, and recently received a 15-year sentence.

The prospect of recovery for victims appeared bleak, with one source reporting that the Department of Justice estimated that victims could recoup 10% to 20% of their investment. Authorities were able to quickly seize what remained of Galemmo's assets, which included over $500,000 in cash, various real estate including a condo in Florida and Galemmo's former office building, and over $100,000 in automobiles.

Clawbacks

One of the largest sources of recovery for victims of Ponzi schemes typically comes from lawsuits against fellow investors who were fortunate enough to ultimately profit from their investments either through an extended investing horizon or the receipt of "commissions" based on the investment of others they referred to the scheme. Aptly known as "clawback" suits in Ponzi jurisprudence, the suits seek recovery of fictitious profits consisting of amounts in excess of that investor's net investment in the scheme. Because the scheme operator does not generate the promised returns from legitimate activities, these transfers are nothing more than the redistribution of new investor funds. While extensive caselaw generally recognizes that clawback targets can keep the amount of transfers adding up to their total investment in the scheme (absent signs that the investor did not act in good faith in receiving the transfers), the law is clear that any receipt of funds over an investor's net investment can be recovered as "false profits."

The Cincinnati law firm of Santen & Hughes began pursuing those "net winners," as they are called in Ponzi jurisprudence, for their false profits from Galemmo's scheme. One net winner, Michael Willner, settled for $1.4 million after he sent the following email to Galemmo investors in the immediate aftermath of the scheme's collapse:

To those of you that I brought into the fund you have my deepest and most sincere apologies...I am embarrassed and shamed by my actions. Like most of us I ignored the poor statements and lack of transparency in favor of the high returns. In hindsight, these warning signs should have alerted me to probe deeper and ask appropriate questions.

One married couple settled for $327,000 while another investor and an associated company agreed to pay $386,000 to resolve a clawback suit. Late in 2015, the Santen & Hughes lawyers sought court approval to distribute a total of $3.4 million to Galemmo's victims that represented the proceeds of clawback settlements. Based on the government's estimate that Galemmo's victims suffered approximately $35 million in net losses, the distribution represented a recovery of roughly 10% for victims. Coupled with another distribution in 2016, victims have received a total of $5.2 million to date - roughly 15% of their losses.

A Cincinnati judge recently entered a $865,000 judgment against another net winner. Combined with another $450,000 in judgments entered against three other net winners, victims can now expect to receive an additional $1.3 million in distributions. Combined with the estimated $6 million in assets seized by the government, it appears that the efforts of Santen & Hughes will be partly responsible for returning nearly 25% of victims' losses. Any further recovery will be directly dependent on the firm's ability to identify additional net winners and any other third parties that played a role in the scheme.